17 Mar 2008  Research & Ideas

The Lessons of Business History: A Handbook

Compiling a handbook on the current thinking in any area of study seems daunting enough, but the just-published Oxford Handbook of Business History carries an even larger mission: bring the lessons of business history to current research in other disciplines and to the practice of business management itself. A Q&A with coeditor Geoffrey Jones. Key concepts include:

  • Business historians over recent decades have generated rich empirical data on firms and business systems that can confirm or challenge many of today's fashionable theories and assumptions by other disciplines.
  • Business history has broadened its scope in the last two decades by including research on corporate governance, industrial districts, business groups, business culture, business education, skills training, accounting and information systems, design, and engineering.
  • Historical knowledge helps us to truly understand business, but the growing ahistorical nature of much management and economics literature has seriously compromised its legitimacy.
  • The business history literature is extremely weak in Africa, and not much better in Latin America, many Asian countries, and the Middle East.

 

Confined to specialist journals and books, business history research too often lacks the impact it should have on the research and practice of business management and the social sciences, according to the editors of the newly published Oxford Handbook of Business History.

The Handbook provides an overview of business history research worldwide aimed at both researchers and practitioners, addressing challenging issues such as globalization, entrepreneurship, corporate governance, technology and innovation, and economic theory and development.

Over the last few decades, business historians have generated rich empirical data that in some cases confirms and in other cases contradicts many of today's fashionable theories and assumptions by other disciplines, says Harvard Business School professor Geoffrey Jones, who edited the volume with University of Wisconsin-Madison professor Jonathan Zeitlin.

But unless you were a business historian, this data went largely unnoticed, and the consequences were not just academic.

"This loss of history has resulted in the spread of influential theories based on ill-informed understandings of the past," says Jones.

For example, current accepted advice is that wealth and growth will come to countries that open their borders to foreign direct investment. "The historical evidence shows clearly that this is an article of faith rather than proven by the historical evidence of the past," says Jones.

We asked Jones to discuss the current state of business history.

Sean Silverthorne: What is the purpose of the book, and who is the intended audience?

Geoff Jones: The purpose of this book is to provide a state-of-the-art overview of business history research worldwide. It seeks to speak to researchers in management, economics, sociology, and history who want to know about the latest research in business history, as well as to a wider audience beyond academia, including practitioners, who are interested in learning from the past of business.

Handbooks such as the Oxford series perform a useful role in making disciplinary research accessible to nonspecialists. Academics have a growing tendency to pursue ever-narrower research agendas and to talk primarily to their own discipline, resulting in a chronic problem of knowledge existing in silos and different disciplines reinventing wheels.

This problem particularly affects business history, making this handbook especially significant. Business historians over recent decades have generated rich empirical data on firms and business systems. They can in some cases confirm, and in others challenge, many of today's fashionable theories and assumptions by other disciplines. Yet for a number of reasons their research rarely permeates into wider literatures.

Q: Why does business history research remain in a silo?

A: I think there are at least three reasons.

First, business historians often write big books on big issues, whilst the preferred outlet for much management and social science research is specialist, peer-reviewed journals.

Second, much research takes the form of case studies and is often qualitative rather than quantitative. In disciplines where standardized social science methodology, especially multiple regressions, has become the accepted norm of rigor, it is hard to understand the significance of this empirical literature, and quite easy to dismiss it as anecdotal and unscientific.

Third, many business historians still work within national frameworks. As a result, much literature is placed within the context of the histories of particular countries rather than addressing analytical issues, such as why firms grow big. Moreover, whilst English may be triumphant in the world of business, in the world of business history, scholars still write in local languages. There is a rich literature on Japanese business history in Japanese and on Latin American business history in Spanish, as well as a good understanding of European business history that requires knowledge of multiple languages.

"This loss of history has resulted in the spread of influential theories based on ill-informed understandings of the past."

As editors, Jonathan Zeitlin and I insisted that the contributors of our chapters focus on key issues and not national frameworks, and at a minimum address the literature generated in North America, Europe, and Asia, and ideally elsewhere. The references in almost every chapter contain multiple citations to literatures not published in English.

Q: The foundational research by the late HBS professor Alfred Chandler is acknowledged in essays throughout the book, but is also sometimes contradicted. How have current research agendas built upon or moved beyond Chandler's work?

A: The foundational nature of Al Chandler's research is widely confirmed throughout the essays of the Handbook. Chandler was primarily concerned with understanding the growth of large, diversified, and professionally managed firms from the late 19th century. The growth of big business, and its role in generating innovation and wealth, remains a central topic of research in business history, reflecting of course its continued importance today.

Yet it is immediately apparent from the titles of the 25 chapters in the book that business historians have become concerned with a much wider set of issues. Some of these, such as marketing, entrepreneurship, and the role of the state, also concerned Chandler, but they were not central to his concerns. There are also chapters on topics that Chandler had little or nothing to say, including corporate governance, industrial districts, business groups, business culture, business education, skill training, accounting and information systems, design and engineering, and so on. Business history has widened its scope enormously in the last two decades.

A striking feature of the research reviewed in the Handbook is that so much of it concerns the period since 1950. Chandler's primary historical research covered the era between 1850 and 1950, when big business emerged and grew spectacularly, and when the United States became the world's largest economy. There is an underlying assumption in Chandler's work that the United States and large, professionally managed firms represent the normative model to which the rest of the world is marching as a result of the imperatives of technology and markets. Over the last two decades, as the boundaries of firms became much more fluid and as non-U.S. players became much more important, it has become clearer that in fact the classic Chandlerian firm should be better seen as the product of a specific historical era and a particular place, essentially the United States. The chapter on family firms shows that they could be as successful or more so than the managerial firms that Chandler considered to be optimal. The chapters on business groups and even cartels treat them as valid and often successful forms of business enterprise rather than inferior options to large, vertically integrated firms.

Q: Is there a major theme running through the book?

A: For me, a major theme is the importance of historical knowledge in truly understanding business, and how the growing ahistorical nature of much management and economics literature has seriously compromised its legitimacy.

In a well-documented process, the spread of quantitative and standardized social science methodologies has driven business and economic historians from economics departments and journals, and from many second-tier business schools. This loss of history has resulted in the spread of influential theories based on ill-informed understandings of the past. As Gary Herrigel's chapter on corporate governance argues, much of the contemporary literature distinguishing sharply between dispersed/outsider (e.g., United States/United Kingdom) and concentrated/insider systems (e.g., Germany/Japan) is problematic, because in reality countries have historically both moved between different systems and, more importantly, combined elements of different systems for long periods.

"The history of globalization warns against easy assumptions on the linearity of globalization."

Another instance is the highly influential "law and economics" literature, which emphasizes the importance of the common law tradition in protecting minority shareholders in contrast to the civil law tradition, and in stimulating financial and economic development. This has sometimes been used to explain why the United States performed so much better economically than Latin America. Yet there is now a formidable amount of evidence from business history, not least the outstanding research by Harvard Business School's Aldo Musacchio in the BGIE Unit, showing that this hypothesis has little empirical support. A careful study of 19th-century French and American law, for example, found little difference between the two countries in the legal system's responsiveness to business organizational needs. Indeed, U.S. law offered entrepreneurs fewer options on how to organize their businesses.

Q: In an essay you write that "globalization is a central issue, and perhaps the central issue, in business history." What have business historians contributed to the study of globalization, and what can they contribute to our current understanding?

A: It is seldom recognized how early business historians have been in identifying issues that later become highly fashionable among management scholars.

Of course it is well-known how much strategic management and the resource-based theory of the firm owe to Chandler, but there are other important examples. For example, during the 1950s Harvard's Research Center in Entrepreneurial History, organized by HBS business historian Arthur Cole, laid the groundwork for the academic study of entrepreneurship.

The study of globalization provides another example. Mira Wilkins published a major study of the globalization of Ford in 1964, only four years after the word "multinational" was coined. Her study of the growth of American multinationals from the colonial era to 1914 was published in 1970. Its analysis of why and how firms globalize would only be much later formalized in the economic theory of the multinational enterprise, and it would take a further 20 years before the mainstream economics profession would identify globalization and global firms as a topic of real importance.

"Many of the most pressing unanswered questions in business history center around entrepreneurship."

A succession of other "firsts" followed, including major studies of the globalization of services whilst most of the literature remained focused on manufacturing, and of diaspora entrepreneurship years before it became of interest because of recent attention on Indian and Chinese entrepreneurs in the United States and elsewhere.

As I write in my essay in the Handbook, and have explored in other work with my HBS colleague Tarun Khanna, the history of globalization delivers a rich set of data for current debates and literature on globalization. At the crudest level, historical evidence avoids spurious labeling of some phenomena as "new," and by so doing can challenge current explanations of their determinants. Historical evidence is crucial to exploring the causal relationship between foreign direct investment and long-run economic development. Today's world policy advice to all countries, and even more so to poor ones, is to open their borders to foreign multinationals because they will generate wealth and growth. The historical evidence shows clearly that this is an article of faith rather than proven by the historical evidence of the past. Or more precisely, there have been a wide variety of outcomes, but one persistent generalization is that foreign direct investment does not bring sustainable development unless the host country has a business system that is able to learn and absorb new knowledge, and an appropriate public policy framework.

At the broadest level, the history of globalization warns against easy assumptions on the linearity of globalization, as business historians have shown how the world globalized spectacularly before 1914, only for it to spectacularly deglobalize over the following 50 years. Business historians have explored the reasons for this deglobalization, demonstrating how globalization can result in losers as well as winners.

The historical evidence on how firms and governments have in the past contributed to suboptimal outcomes provides important lessons for today if a similar meltdown of globalization is to be avoided.

Q: Did putting the Handbook together change your own thinking?

A: One of the most surprising revelations for Jonathan and myself was just how many people are working in the area. This may sound surprising, given that I edit the leading journal in the field, the Business History Review, and regularly attend conferences of the flourishing business history societies in the United States and Europe. Yet as we reviewed the literature being covered by our contributors, it became apparent that business history, as both a body of literature and a community of scholars, has a narrow and a broad definition.

The narrower definition includes researchers such as myself who do primary archival research on the history of business, who belong to the societies, and who publish in the core journals.

However, there is a much broader definition comprising people whose primary affiliation is with one of the social sciences or management, but who are extremely interested in the historical development of business, sometimes doing original research themselves, sometimes bringing new theoretical perspectives and frameworks.

Business history is so exciting because these two narrow and broader circles interact. In the past I have considered such vagueness about what exactly business history is to be a source of weakness, but as we put the Handbook together I realized that it explains the vitality of the field. It means that business history remains open to multiple methodologies and new questions, and is not crippled by the orthodoxies that constrain research agendas in so many other disciplines. This open-architecture structure lets business historians engage in two-way exchanges with other researchers, sometimes using their empirical data to test or challenge the "stylized facts" of economists, and sometimes learning from other disciplines new questions to ask in their own research.

Q: Where is more research needed?

A: The first answer is geographically. Business history has been a rich person's game. It has flourished in North America, Western Europe, and Japan. At the other extreme, the literature is extremely weak in Africa, and not much better in many Asian countries and the Middle East.

India's rich business past is still only partially documented, despite some first-rate research in India and elsewhere. There is still only one overall survey of Indian business history. As Indian companies such as Tata become global giants, we need to understand where they came from.

Latin America represents a mixed picture, with pockets of outstanding research in Mexico, Brazil, Colombia, and Argentina, and significant gaps elsewhere. The business history group currently has a major initiative to encourage business history research in Argentina and Chile led by Research Fellow Andrea Lluch, who is currently based at our Latin American Research Center. Among other activities, she is conducting oral history interviews with leading practitioners in both countries. Last week she organized a Colloquium in Buenos Aires, which I attended, to map out future research agendas. The meeting attracted a large number of both academics and practitioners.

It is very important to expand our knowledge about the business history of countries beyond the West and Japan, not only because the firms of these other countries are increasingly important, but because we are sure to get a whole new set of research questions, and to question many of our current assumptions as well.

And second, I believe that many of the most pressing unanswered questions in business history center around entrepreneurship. This was a major concern of business historians before Chandler, and others refocused the discipline on issues of organization and firm growth from the 1960s.

Over the last few decades, the study of entrepreneurship has not been entirely displaced, but it has always been marginal to mainstream research agendas, and business historians have not made a lot of progress in reaching valid generalizations of the kind Chandler offered for the growth of firms. In recent years, entrepreneurship researchers have made progress in understanding entrepreneurial cognition of opportunities and issues surrounding the assembly of resources.

The achievements of such research have been constrained, however, because of neglect of the context in which entrepreneurial decisions are made, and because of a need to use large data sets, which has narrowed much research to a study of high-technology start-ups in a few locations.

Business historians have a real opportunity now to address the key issues of why societies differ in entrepreneurial cognition and performance in a systematic fashion, building on their deep knowledge of historical context.

Q: What are you working on now?

A: I'm completing a book for Oxford University Press on the globalization of the beauty industry from the 19th century. I'm trying to practice what I preach about the need to globalize research agendas by undertaking a comparative study of the world industry, using the historical archives of firms and—for the more recent period—interviews from around the world to explore these issues. It's an enormously time-consuming exercise, and perhaps one that could only be possible at Harvard Business School.

I try to address classic business history questions concerning the growth of large firms and the reasons why particular firms became global leaders, but I also venture beyond the traditional comfort zone for a business historian by delving into social and cultural issues by exploring how far the commercial beauty industry has homogenized beauty ideals around the world.

About the author

Sean Silverthorne is the editor of HBS Working Knowledge.